The partnership between memory giants Longsys and Kingston seems to have hit a major snag.
After announcing a joint venture in late 2023 to tap into China's embedded storage market, Kingston is reportedly looking to exit the Chinese market, with its Shanghai plant rumored to be up for sale at over US$1.2 billion. This development has stalled the collaboration, though the China-based Longsys insists it's still pushing the venture forward.
Longsys's expansion
In recent years, Longsys has been eager to expand and transform its business. Besides its Foresee brand, the consumer brand Lexar, acquired in recent years, has steadily gained a foothold in the Chinese market.
Longsys also acquired Longforce Suzhou (formerly Powertech Technology Suzhou) and Zilia Brazil (formerly SMART Brazil) in 2023. Although Longsys has a testing production line in Guangzhou Zhongshan, it previously lacked an independent manufacturing and distribution system.
By acquiring the Suzhou and Brazil plants, it has significantly increased its product self-sufficiency, including SLC NAND and eMMC packaging services from the Suzhou plant, enhancing its mid-to-high-end product line capabilities. This move meets end customers' expectations for a stable supply chain and bolsters its appeal in the capital market.
JV hits snag
The tense China-US relations in recent years have caused many major US companies to gradually shift their production bases, prompting Kingston to join in on the wave of China exit.
The sale of Kingston's Shanghai plant has attracted interest from several Chinese memory module manufacturers, with Longsys being the strongest contender.
Consequently, in 2023, Longsys announced its partnership with Kingston to establish a joint venture. Many believed that Longsys was on the verge of acquiring the Shanghai plant, with Kingston expected to support Longsys in expanding its market presence in China and overseas.
According to the initial plan, the joint venture would be 51% owned by Longsys and 49% by Kingston, primarily supplying embedded storage products to the Chinese market. Longsys would focus on product development and technical support, while Kingston would handle procurement and branding needs.
However, more than six months later, the joint venture's progress has stalled. Rumors in the Chinese memory industry suggest the collaboration is on the verge of termination.
In response, Longsys stated that work on the joint venture is ongoing. However, the increasingly complex geopolitical factors require both parties to be more prepared, with no concrete timetable in place.
Industry insiders note Kingston's Shanghai plant is substantial, but its production line utilization has not been maximized since the market downturn. At its peak, the plant employed about 2,000 workers, with several hundred still on staff recently.
If the joint venture progresses smoothly and the Shanghai plant is acquired, it would be a strategic boost for Longsys's ambition to bolster its domestic supply chain and expand its global footprint.
However, rumors of a breakdown in the partnership are widespread. Reports suggest Kingston is firm on its asking price, which could range between US$1.2 billion and US$1.5 billion.
For Longsys, which reported its first-ever annual revenue surpassing CNY 10 billion (US$1.4 billion) in 2023, such a price tag would impose a significant burden on cash flow and debt ratio.
Additionally, the continuous rise in NAND Flash prices is straining the financial resources of memory module manufacturers. NAND prices have been climbing since late 2023, and by the first half of 2024, module manufacturers had mostly depleted their low-cost inventories, resulting in strong industry-wide financial performance.
However, as the second half of the year begins, the demand for enterprise SSDs remains robust, with upstream NAND manufacturers reluctant to release wafer resources, pushing the cost of consumer SSDs above their actual selling prices.
This has led memory module manufacturers to prefer holding onto their funds to avoid further increases in inventory levels. There is no significant time pressure for Kingston to sell the Shanghai plant, and the company is not inclined to lower its price.
Industry sources indicate that both parties have returned to square one, which could be beneficial for Taiwanese manufacturers. Kingston continues to dominate the DRAM market, while Longsys leads in NAND pricing.
Moving forward, the companies are expected to operate independently, preventing excessive concentration of market resources.
